Bringing Social Media ROI into Sharper Focus

Sometimes a task can be so daunting we just keep putting it off, even though we know we'd be better off sucking it up and getting it done. When my in-laws downsized from a house to a condo, they got rid of lots of stuff. But nearly a year later, they're still renting a storage locker and paying monthly fees to house more stuff. They know they need to get rid of it. But that will entail sorting through it all, figuring out if it can be donated or otherwise recycled, and then figuring out how to dispose of the rest. For now, it's easier to ignore it and pay the fees.

Some companies take a similar approach to social media. They want to use social media, they understand it can yield benefits, but the process of trying to quantify those benefits seems so difficult they just keep putting it off. I wrote about it earlier this month, stressing the importance of establishing specific goals for social media efforts and making them a holistic part of broader business strategies.

Writing on his Random Thoughts of a Boston-based CTO blog, John F. Moore reminds us that while there are financial costs and risks associated with launching social media efforts, there are also costs and risks in NOT using socia media, especially if your competitors are doing so. Moore believes "the cost of not doing anything outweighs the cost of doing something."

Moore's suggestions for factors to consider:

Reduced customer-support costs. When I spoke to Ed Moran, director of product innovation at Deloitte and one of the authors of the second annual "Tribalization of Business" survey, in October, he offered the example of a Deloitte client that has cut call center costs as members of its customer community solve more issues online. "And when there is a problem, they can adjust call center staffing because they can predict it by the chatter they see online," Moran told me. "If tech-savvy people are online looking for downloads to help with a printer problem, you can predict people who aren't tech-savvy are having the same problem. They're probably going to call the call center."

Reducing customer churn. Customers who engage with you on social channels should be less likely to buy from competitors.

A slideshow from BrandBuilder Marketing on the Digital Buzz blog does a nice job of walking folks through the process of connecting social media to actual business benefits. (Bonus: It employs some wonderfully cheesy graphics to illustrate its points.) Among its recommendations:

Create a baseline.

Create activity timelines.

Examine sales revenue.

Examine number of transactions, drilling down into data to determine not only total transactions but also net new customers and how much is spent per transaction.

Once that's done, companies must measure transactional precursors to determine if social media activity is linked to positive results. This involves overlaying all timelines of activity and looking for patterns. Companies should be able to see if Web site visits appear linked to social media activity, for example, and determine how many of the visits involved sales.

This is a topic that must be covered. I do not think that ROI is a correct measurement of social media as technically ROI = (Sales - investment) / investment. Social media is used as a marketing tool, and sales is not a by-product of marketing. Marketing creates awareness and generates qualified leads. "Sales" (as an organization or individual) closes sales. BUT there are things that should be measured moving a target segment through the social media marketing funnel (see "Social Media Conversion and the Social Media Marketing Funnel" http://bit.ly/dsPrq). I think you covered some good ground here highlighting things that can be measured. I also suggest checking out "Measuring the Value of Social Media" at http://bit.ly/hodQp.

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